Eurozone at risk of ‘lost generation’ – ECB’s Cœuré

17/6/2016

By Mehreen Khan

The eurozone will suffer a “lost generation” without urgent government action as high levels of youth unemployment overwhelm the continent, one of the ECB’s most senior policymakers has warned.

Escalating the central bank’s calls for member states to do more to rescue their economies from low growth traps, ECB executive board member Benoît Cœuré said the eurozone would likely see its working population shrink or stagnate in every one of its 19 economies in the coming years, writes Mehreen Khan.

He noted that youth unemployment surpassed overall unemployment in every eurozone member state, overwhelming nearly 40 per cent of the population in the likes of Spain and Greece.

“To avoid creating a ‘lost generation’ we need to act quickly”, said Mr Cœuré.

“Despite being the best-educated generation ever, they have more trouble in entering the labour market”.

Mr Cœuré’s comments come a week after ECB president Mario Draghi warned government inaction would lead to permanent economic damage in the euro-area.

Restrictive hiring and firing laws meant the continent had seen unemployment soar far higher in the post-crisis era, compared to similar performance in the US, said Mr Cœuré.

This has led to what he dubbed “the European unemployment disease”:

''Whereas the US quickly readjusts when the economy picks up, the euro area takes much longer to do so and once the unemployment rate actually starts falling it almost never seems to return to that previous low. The end result is that euro area unemployment has risen steadily for 40 years.''

But highlighting the political barriers to labour market reforms – noting recent rioting and strikes in Mr Cœuré’s native France – he suggested measures such as employment protection be eased only when wages were rising and sufficiently flexible in an economy, cushioning the impact on the hardest hit.

He also criticised the likes of Germany for concentrating too much on liberalising their work forces but protecting services and goods sectors from higher competition, comparing Berlin’s lack of progress to Greece:

''The Greek programme is one example; the authorities there faced strong resistance from pressure groups. I have absolutely no doubt that one would meet similar obstacles when reforming, say, the German or French product and service markets.

In fact, both these countries have been opposed to wider service sector reform at European level. And Germany is one of the countries that has realised the smallest share of potential benefits from the Services Directive according to the European Commission.''

In a stark warning, he added that Europe’s population had lost faith in EU institutions “when they started losing sight of their tangible benefits, that is, the impact of the integration process on their jobs and standards of living”.

This disillusion could only be remedied by action at the European and domestic level, he said, adding:

''The burden of breaking this deadlock cannot be borne by the people of Europe: the burden must be borne by the EU and its institutions and by European governments.''

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